Your project profit is only as accurate as your hourly rates. Set them up properly and ProWorkflow shows you, task by task, where you're making money and where you're losing it.
This article covers:
The difference between a charge rate and a cost rate
Two ways to work out your cost rate, with worked examples
How to set a charge rate that hits your target margin
Setting default rates for each staff member
Keeping cost rates and margin private
Charge rate vs cost rate
Every hourly rate in ProWorkflow has two parts:
Charge rate: what your customer pays for 1 hour of work.
Cost rate: what 1 hour of billable work costs your business, including wages and a share of overheads.
The gap between them is your profit on that hour.
Using charge rates
You apply charge rates to items and tasks in projects, quotes and invoices. In projects, each task or item can use one of two charge rate types. Set your default under Settings > Hourly Rates > Cost & Charge Rate Defaults.
Same Rate: one rate for the task, whoever works on it.
Split Rate: a different rate depending on who does the work. For example, $120/hr for Jane and $80/hr for Jim, who is less experienced.
Quotes and invoices only need charge rates. Add cost rates as well, and ProWorkflow can track profit as the project runs. You'll see which tasks or types of work make or lose money, whether that's from under-charging or from work taking longer than planned.
Working out your cost rate
Your cost rate should cover everything it takes to deliver an hour of billable work. That's wages plus a share of software, office space, equipment, training and management time.
Choose your approach under Settings > Hourly Rates > Cost & Charge Rate Defaults, using the Cost Rate dropdown. (No Cost Tracking turns cost tracking off.)
Option 1: Hourly Cost Rate (one rate for everyone)
This is the simplest setup. Spread your total running costs, including wages, evenly across every billable hour your team works.
Example: a 10-person consultancy aiming for a 25% margin
Employees | 10 |
Hours per employee per year (40 × 52) | 2,080 |
Total running costs, including wages | $900,000 |
Cost per hour worked ($900,000 ÷ 20,800) | $43.27 |
Billable hours (share of time you can bill) | 65% |
Cost rate ($43.27 ÷ 0.65) | $66.57 |
Target margin | 25% |
Charge rate ($66.57 ÷ 0.75) | $88.76 |
To make a 25% margin, this business needs to charge at least $88.76/hr.
Option 2: Staff Cost Rate (a rate per person)
This gives each staff member their own cost rate, based on their pay plus an overhead loading. It's more accurate when pay varies a lot across the team.
Example: an employee on $70,000 a year (NZ)
Salary | $70,000 |
Employer KiwiSaver (3.5%) and ACC levy (0.67%) | $2,919 |
Overhead loading (20% of salary) | $14,000 |
Total annual cost | $86,919 |
Cost per hour worked ($86,919 ÷ 2,080) | $41.79 |
Cost rate at 65% billable ($41.79 ÷ 0.65) | $64.29 |
Employee cost calculators spread cost over every hour worked. Dividing by your billable % spreads it over only the hours you can charge for, which is what your rate has to cover.
KiwiSaver and ACC rates change, and ACC varies by industry. Check current rates before you set yours.
Setting a charge rate from your target margin
Once you know your cost rate, ProWorkflow can suggest the charge rate for you.
Go to Settings > Hourly Rates and click a rate to open Update Hourly Rate.
Enter the Cost Rate.
Open Margin, Markup, Profit and enter your target Margin (for example 25%).
ProWorkflow fills in the Charge Rate, Profit and Markup.
For the $64.29 cost rate above, a 25% margin gives a charge rate of $85.72, a profit of $21.43/hr and a markup of 33.3%.
The panel uses these formulas:
Profit = charge rate − cost rate
Margin = profit ÷ charge rate × 100
Markup = profit ÷ cost rate × 100
Margin and markup describe the same profit in two ways. A 25% margin is a 33.3% markup.
Setting default rates for each staff member
When you've worked out your rates, set them as defaults for each staff member so they apply automatically. You'll find this under Settings > Hourly Rates > Cost & Charge Rate Defaults. See Expanded Financial Settings.
Tracking margin on your projects
ProWorkflow calculates Margin % from the difference between charge and cost rates across allocated hours. Keep an eye on it against your target (25% in these examples) to spot projects drifting off track early. See Profitability Tab and Financial Fields.
Keeping cost rates and margin private
Cost rates and margin are sensitive. Use Sensitive Business permissions to choose who can view and edit them.
Go to Settings > Roles & Permissions, select a role, and under High Work Access untick Sensitive Business Cost Rates for anyone who shouldn't see these figures. Their account will no longer show cost rates or margin.
